1.All WTO Members are committed to Article 20 of the Agreement on Agriculture as a basis for the continuation of the reform process. Article 20 recognises the "long-term objective of substantial progressive reductions in support and protection resulting in fundamental reform". However, while Article 20 represents an obligation to continue the reform process, the process should not necessarily be finalised by reaching the long-term objective in the ongoing negotiations. Moreover, the size of the reductions in support and protection should be determined by, among other things the experience gained from implementing the existing Agreement, the consequences of the Agreement, non-trade concerns (NTCs), special and differential treatment to developing countries and the objective of establishing a fair and market-oriented agricultural trading system.

2.Since the Ullensvang conference on Non-trade concerns in agriculture1International conference organised by European Commission, Japan, Mauritius, Norway, Republic of Korea and Switzerland. Held in Ullensvang, Norway, 1-4 July 2000 and attended by government officials from altogether 40 countries. Information on conference program, papers, participating countries and press release are available at http://mf.dep.no/. in July 2000, a number of WTO Members have, in the field of agriculture, expressed their sensitivity to NTCs, such as rural development, food security and protection of the environment. In a joint effort, a total of 27 Members submitted a Note on non-trade concerns to the Special Session of the WTO Committee on Agriculture in November 2000 stating that "Every country has the right, in accordance with mutually agreed rules, to address non-trade concerns, such as strengthening the socio-economic viability and development of rural areas, food security and environmental protection, and promoting the coexistence of various types of agriculture."

3.NTCs are special features characterising the agricultural sector. 2For a thorough discussion of the specificity of the agricultural sector, see Paper One submitted by Switzerland at the Ullensvang Conference (http://mf.dep.no/). The purpose of this paper is to prepare the ground for a mutual understanding among all WTO Members on the NTCs safeguarded by a multifunctional agriculture. Such an understanding should be built on the principle of coexistence, which involves, in particular, the recognition of five essential elements. These elements, which are expected to be of relevance to both developing and developed countries, are examined further in the subsequent sections of this paper. First, while there is a general and universal interest in NTCs by all countries, individual countries are giving different weight and priority to the individual NTCs. Moreover, in a specific country, in particular in developing countries and economies in transition, agricultural policy needs may change over time as a result of internal or external factors. This policy diversity should be duly taken into account.

4.Second, a certain degree of domestic agricultural production is needed to safeguard NTCs. A country can import food from another country, but the safeguarding of NTCs such as rural development, food security and environmental benefits such as bio-diversity depends largely on domestic agriculture. The coexistence of various forms of agriculture, in both high- and low-potential areas, is therefore required in order to pursue non-trade objectives.

5.Third, as domestic production is required to safeguard NTCs, the diversity of production conditions in different countries needs to be recognised. Fourth, given that conditions in many low-potential areas are unfavourable to agricultural production, government intervention in favour of agriculture is often needed in such areas in order to sustain production. Flexibility must therefore be built into the future multilateral trading system, on a mutually agreed basis, in order to grant Member states sufficient room for manoeuvre in national policy design. Fifth, it should be recognised that, in many cases and for a number of reasons, Green Box measures alone may not be enough to safeguard NTCs.

1 DIVERSITY OF CONCERNS

6.For a number of countries, developing as well as developed, NTCs are of vital importance. Obviously, not all may be interested to the same extent in the same concerns. One Member may have a special focus on rural development while others may focus their attention on issues such as food security, biodiversity, cultural heritage, land conservation or the maintenance of agricultural landscapes. We may have different priorities and different needs. What unites us is a genuine interest in the safeguarding of NTCs and the need for the multilateral trading system to accommodate such concerns.

7.Countries’ diverse policy objectives simply reflect that as a result of different cultural and historical backgrounds, economic development and consumer preferences, countries give different priorities to different concerns. For instance, predominantly agrarian countries or countries with few alternative employment opportunities for their rural populations, tend to put more emphasis on agriculture as a rural employment generator than countries for which their rural population can relatively easily find jobs in other sectors. Moreover, countries that have regions with low population densities tend to put more emphasis on decentralised settlement policies. Furthermore, in countries in which farming has been an economic activity since ancient times, agriculture makes important contributions to the preservation of biodiversity and cultural heritage. A third example is the issue of food security, which is approached differently in net food-importing versus -exporting countries. A fourth example relates to certain environmental and food safety issues, for which consumer sensitivity varies between countries.

8.It is important to note that policy objectives not only vary in space (i.e. between countries), they may also change over time. This is particularly true in case of developing countries and economies in transition.

9.For instance, society's demand for environmental services related to agriculture may increase. Furthermore, rapid urbanisation may result in increased focus on rural development and agriculture as a rural employment generator. Also, external supply shocks and reduced food availability may in turn result in increased focus on domestic agricultural production. The future demand for public goods, such as environmental services, rural employment and food security, may therefore change during the development process.

2 THE NEED FOR DOMESTIC AGRICULTURE

10.As discussed in Section One, a diversity of NTCs characterise the agricultural sector, and every Member of the WTO, developing as well as developed, has the right, in accordance with mutually agreed rules, to safeguard such concerns. The crucial question therefore becomes: how can these NTCs be safeguarded at the national level? Based on a thorough analysis of different NTCs, it seems clear that such concerns cannot be safeguarded without a certain degree of domestic agricultural production, as the following four examples illustrate.

11.The relationship between domestic agriculture and national food security is well established. It is a fundamental objective of every country to ensure stable supplies of food, and most governments have opted for a certain degree of domestic agricultural production, in conjunction with imports, to ensure such supplies. Total self-sufficiency in all food items would neither be feasible, nor would it be the most efficient solution. However, in order to reduce the risks that are often associated with an excessive reliance on world markets, many countries with a low self-sufficiency in agricultural products judge as essential a certain degree of domestic agricultural food production.

12.The contribution of domestic agriculture to rural development and the viability of rural areas is also generally acknowledged. In the case of developing countries with predominantly agrarian economies and in remote regions of many developed countries, agriculture's contribution to rural employment and economic and social viability is fundamental. Policies to promote economic development may have unacceptable social costs if structural adjustment of the agricultural sector fails to translate into alternative employment opportunities. The impact of trade on rural development would depend on whether the rural region in question is internationally competitive, in agriculture or other sectors, or not.

13.A third example is provided by agriculture’s contribution to bio-diversity. Thousands of years of farming have formed the natural landscape, and such agricultural landscapes provide at present a range of habitats and are home for a considerable number of wild species at all taxonomic levels. Preserving bio-diversity, which is the objective of the 1992 Rio Convention on Biological Diversity, therefore depends on the maintenance of these landscapes. In several cases even specific farm methods may need to be continued. 3For instance, several wild plant species are favoured by the pasturing of certain domestic animal species.

14.A final example relates to agriculture’s contribution to land conservation. For instance, in certain monsoon climates, paddy fields play an important role in retaining water. As a result of this water buffering capacity, paddy fields contribute to flood control and to the prevention of soil erosion and landslides. 4This listing of examples is not exhaustive. For instance, domestic agriculture may also contribute to NTCs such as cultural heritage and identity and increased food safety.

15.The examples above confirm that the safeguarding of NTCs depends to a large extent on domestic agriculture, 5In economic analysis these linkages between the primary production of food and fibre, on one hand, and various NTCs, on the other hand, are often called jointness, as NTCs are commonly produced jointly with the food and fibre production. Moreover, according to economic theory NTCs are often categoriesed as public goods, for which, by definition, there are no functioning markets. For instance, there is a market place for private goods such as food, but public goods that are side effects of the food production, such as for instance biodiversity or food security, cannot be bought or sold at any markets, locally, nationally or internationally. and there are limits to the extent to which trade can address these concerns. This conclusion has an important bearing on the WTO agricultural reform process. Each country should therefore, according to mutually agreed rules, be allowed to secure a certain degree of domestic production, and any reform of the multilateral trading system in agriculture should allow for the future coexistence of various forms of agriculture, across countries and regions.

16.The principle of coexistence is consistent with the objective to establish a fair and market-oriented agricultural trading system, referred to in Article 20 and the Preamble to the Agreement on Agriculture. It is difficult to foresee this objective achieved without recognition of every country’s right to address NTCs and the elaboration of a multilateral trading system that enables each country to fulfil this right.

3 DIVERSITY OF PRODUCTION CONDITIONS

17.The previous Section concluded that NTCs to a large extent depend on domestic production. Different types of agriculture, in both low-potential as well as in high-potential areas, should therefore be allowed to coexist. The principle of coexistence implies that the diversity of production conditions needs to be recognised. Therefore, each country’s production conditions become relevant and need to be acknowledged and taken duly into account in agricultural policy design and multilateral trade policy reform.

18.Across the entire WTO membership, production conditions differ, and such differences are due to physical and natural conditions (e.g. climate, soils and topography), social and cultural backgrounds (e.g. agrarian structure) and institutional and economic conditions (e.g. infrastructure and labour costs). As a result of this considerable diversity of production conditions, agricultural production costs vary substantially within and across countries.

19.Many developing countries, due to for instance poor soils, difficult climatic conditions (e.g. low and erratic rainfall), small farms, poor infrastructure and limited access to new technologies are facing production costs above world average. These cost differentials contribute to determining to what extent the various WTO Members are able to compete or not in world agricultural markets.

20.Especially in developing countries and economies in transition, production costs not only vary in space (i.e. between countries and regions), they may also change over time. For instance, introduction of new technologies and structural adjustments may result in cost reductions. However, several factors may lead to increased costs. For example, labour costs may increase as a result of general economic growth and development. In labour-intensive productions such increases may have a decisive effect on overall competitiveness. Another factor influencing the competitiveness of the sector is the natural protection that agriculture benefits from in many developing countries and countries in transition as a result of poor infrastructure. For instance, improved communications through more developed harbours, roads and railways, will strengthen market integration and may result in increased import pressure. 6Needless to say, these examples should by no means be cosidered as arguments against economic development.

21.In case of low-potential areas with unfavourable production conditions, improvements in efficiency and production methods as a result of new technologies may not be sufficient to completely offset increases in for instance labour costs and in import pressure resulting from falling natural protection. In such cases, Government intervention through various policy measures may be the only way to sustain domestic production.

4 THE NEED FOR FLEXIBILITY IN NATIONAL POLICY DESIGN

22.In the previous Sections the diversity of situations, in time and space, that characterise WTO Members have been highlighted. In fact, in the WTO there are probably no Members that share exactly the same objectives and face identical production conditions. Each and everyone have their own characteristics. Confronted with this diversity, dividing countries in only two groups, developing and developed, is probably not very meaningful. The differences within these two groups are probably as distinct as they are between the groups. For instance, the interests of low-cost efficient developing country exporters differ substantially from the interests of the vulnerable agriculture of many least-developed countries or landlocked or small-island developing states (SIDS). Among developed countries the same distinction exists between large-scale, low-cost exporters and high-cost, small-scale producers. In addition, economies in transition face their own special challenges that need to be addressed.

23.Consequently, regardless of developing status and GDP level, one of the major conflict lines in the WTO agriculture negotiations goes between low-cost efficient countries, on one hand, which would like so see agricultural trade free from any trade restrictions, and countries with unfavourable and disadvantaged production conditions, on the other hand, whose agriculture cannot be sustained without support or protection.

24.Therefore, although each country faces its own specific set of challenges, a large number of WTO Members share a common set of aspirations in the ongoing WTO negotiations on agriculture. United in their diversity these countries oppose an inflexible one-size-fits-all approach that ignores the differences in production conditions. Instead they call for a meaningful and operational recognition of NTCs through a multilateral trading system that is sufficiently flexible to accommodate such concerns under the various circumstances faced by Members.

25.All Members of the WTO recognise the importance of multilateral agricultural trade rules. We all depend on the strength of a multilateral trading system that is sufficiently uniform to ensure transparency, predictability and equal and fair treatment of all Members. Therefore, in the negotiations the need for flexibility should not be a carte blanche for all kinds of policies. For instance, it seems difficult to justify export competition measures as part of a long-term strategy to ensure NTCs.

26.However, the call for flexibility in agricultural policy design should not be considered a threat to the multilateral trading system. On the contrary, the credibility and legitimacy of the multilateral agricultural trading system will be judged on its ability to operationalise legitimate policy objectives in ways that all Members are comfortable with.

27.For some countries, sufficient flexibility is already built into their existing scheduled WTO commitments. In such cases, the challenge in the negotiations would basically consist of maintaining sufficient flexibility to safeguard NTCs in the long-term. In case of other countries, in particular some developing countries and economies in transition, existing flexibility may have proved to be insufficient. These countries may therefore need additional flexibility, including under the S&D provisions.

28.The challenge ahead of us therefore lies in designing a flexible set of multilateral agricultural trade rules that take country-specific situations properly into account while avoiding fragmentation of the entire multilateral trading system. In doing so, there is a need to recognise that due to the specific characteristics of agriculture, as spelled out in the previous Sections, market forces alone are often not sufficient to address NTCs. Government intervention, sometimes at considerable levels, may under certain circumstances be needed in the agricultural sector to safeguard domestic production required to address NTCs.

5 THE LIMITATIONS OF THE GREEN-BOX-ONLY APPROACH

29.What policy measures may actually be needed to address NTCs? Some countries advocate Green Box measures as the only legitimate and appropriate policy instruments to address NTCs. Such measures are undoubtedly important and valuable tools in agricultural policy design, in general, and in addressing NTCs, in particular.

30.However, in light of the numerous negotiation proposals submitted by WTO Members during the First Phase of the agriculture negotiations, the question arises as to whether Green Box measures alone are sufficient to address NTCs. The limitations of a Green-Box-only approach relate to a number of factors, of which especially three are commonly referred to. 7See the Norwegian proposal (embodied in G/AG/NG/W/101), in particular Section 6, for further details. First, as indicated in Section 3, the conditionality imposed on the implementation of Green Box instruments, in particular, the requirement of having no or at most minimal effect on production and trade, may to a certain extent not be appropriate for the safeguarding of NTCs. This may be particularly the case for many developing Members, which are struggling to promote domestic production. However, it may also apply to other countries with unfavourable production conditions for which the use of Green Box measures only may not provide sufficient production incentives to sustain domestic production needed to address NTCs.

31.Second, the detailed and specific conditionality of the Green Box may involve high control and administration costs in all countries. This may be particularly the case if a Member were to abandon all other measures and pursue non-trade objectives through extensive use of Green Box policies only.

32.Third, Green Box measures involve budgetary transfers that may not be available, particularly in case of developing countries and economies in transition.

33.The multilateral agricultural trading system should therefore allow for a combination of policy measures that, on one hand, adequately safeguard NTCs, also in low-potential areas, and, on the other hand, are least-trade distorting. The issue of spillover effects should be approached bearing in mind the balance of interests. After all, in a global trading system we are all affecting each-other and the challenge consists of finding solutions that are sufficiently balanced to be acceptable to all Members.

34.Special attention must be paid to the needs of developing countries. Special and differential treatment (S&D) is an integral part of the multilateral trading system and of the Agreement on Agriculture and is justified by a number of special needs, several of which are interrelated, that characterise most developing countries. For instance, in terms of policy objectives, developing countries are facing several challenges in their development process that are specific for their stage of development. Also, many developing countries are facing special problems due to limited budgetary or administrative capacity. Some problems may also relate to the individual history of support and protection of each country, on which existing commitment levels are based.

35.In order to cater for the special needs of developing countries, a number of proposals have been tabled by developing as well as developed countries. The majority of these proposals seem to indicate that existing S&D may not be sufficient, and additional measures are proposed.

36.The legitimacy of S&D cannot be questioned, and the rationale and potential of S&D should not be underestimated. However, while S&D treatment is indisputably necessary, it may not, on its own, be sufficient to meet the long-term needs of many developing countries.

37.Due to the binding character of the WTO commitments, Members should take a long-term perspective in WTO negotiations. For example, as suggested in Section 3, in the long run, under certain circumstances, agricultural production costs may increase, for instance as a result of increased labour costs and falling natural protection. Government intervention through various policy measures may be the only way to sustain domestic production, and to this end, S&D may prove to be insufficient. Also, as the economy of a developing country progresses, it may no longer qualify for S&D treatment and may therefore have to rely on the general rules only. 8At present, developing countries are granted the LDC status by UN, while the general status as developing country is a result of self-designation. In the WTO negotiations, as S&D proposals are discussed, the complex issue of graduation is likely to appear on the agenda.

38.Finally, the general consensus among many WTO Members seems to suggest that, while S&D should be enhanced, it should not be developed into a completely separate set of rules. The integrity of the multilateral trading system should be preserved in order to avoid unnecessary and undesirable fragmentation, and S&D should be developed as a complement to, not a substitute for, the more general rules of the multilateral trading system. Therefore, all in all, in the continuation of the reform process it should be ensured that the general rules of the agricultural trading system are refined in ways that meet the long-term needs of all countries, including developing Members.

QUESTIONS FOR CONSIDERATION

Question 1: The paper describes the policy diversity characterising NTCs. What are the most important NTCs of your country?

Question 2: To what extent and under what conditions is domestic production needed to safeguard NTCs?

Question 3: The paper refers to the diversity of production conditions. How decisive are such production conditions for a country’s competitiveness in agriculture?

Question 4:What are the implications of this diversity in production conditions for the WTO negotiations?

Question 5:To what extent is government intervention justified or not in agriculture?

Question 6:Are Green Box measures sufficient to address NTCs in your country?

Question 7:If Green box measures are insufficient, which additional measures would be most appropriate for your country?

VEDLEGG